INVEST IT

TBY talks to Rufat Mammadov, President of the Azerbaijan Export and Investment Promotion Foundation (AZPROMO), on large-scale events and their ability to attract FDI and the potential Iran may hold.

BIOGRAPHY

Rufat Mammadov graduated from Baku State University with a degree in International Law and holds a Master’s in European Integration Law from the Dresden University of Technology (Germany). Prior to joining Azerbaijan Export and Investment Promotion Foundation (AZPROMO) in 2012, he held various positions in private and public sectors in Azerbaijan, primarily in the fields of legal and business consultancy, corporate and project management, business development, trade, and investment.

How would you assess the effectiveness of hosting large-scale international events, like the 2016 Formula One Grand Prix in Baku, in terms of drawing foreign investments to Azerbaijan?

As the result of the great attention of the Head of the State, sport is rapidly developing in our country. Azerbaijan is known as a sporting country and our successes in this field are also well known. It has become a tradition to host international competitions in our country. Numerous World and European championships, as well as other competitions, are held in Azerbaijan every year. Holding the Formula One European Grand Prix in Azerbaijan in the year after the first European Games in 2015 is evidence of increasing international interest in Azerbaijan. This event will significantly contribute to the development of sport and it will also help boost the economy and increase long-term investments. In this context, the 2016 Formula One Grand Prix will bring the latest technology in motor sport and manufacturing to the streets of Baku. It will demonstrate to key potential investors that Azerbaijan is open to developing its high-tech sectors. The sharing of technical knowhow with local people will make Azerbaijan more attractive to companies looking to invest in talent. I recognize that patience and determination are important to convert this increased international interest into sustainable benefits for Azerbaijan. Investment promotion is a long-term game. Our team is committed to helping investors increase their knowledge and understanding of Azerbaijan as a place to invest.

Foreign investments in fixed assets of the country increased by 40% in 2015. To what can you attribute this phenomenal growth?

According to the State Statistical Committee of Azerbaijan, the volume of investments in fixed assets by foreign institutions was AZN7 billion in 2015. Foreign investors take a long-term perspective. They are not driven by short-term speculation for short-term gain, but by the long-term prospects of a country. Despite current challenges, this figure is a vote of confidence in the long-term future of Azerbaijan. This confidence comes from a broad range of countries like the UK, Norway, Russia, Iran, the US, Malaysia, and Japan. The Shah Deniz II project has driven much of the investment in the construction and engineering sectors. When I meet these investors, they tell me they chose Azerbaijan for a number of key reasons. These include our strategic location and proximity to regional markets, our improving infrastructure and logistics, an increasingly skilled workforce with an international outlook, and continuous improvements in our regulatory and business climate. These are long-term determinants of investment into Azerbaijan, which help to ensure we can attract investment through challenging periods in the short and medium term.

AZPROMO recently organized a well-attended Azerbaijan-Iran business forum. In light of the impending removal of international sanctions against Iran, what is your assessment of the new economic opportunities that this could bring to Azerbaijan?

The Republic of Azerbaijan and the Islamic Republic of Iran share a close cultural and historic bond. There is a close affinity between our peoples. I witnessed this at the Azerbaijan-Iran Business forum. Over recent years, the international sanctions have made it so that this strong cultural bond did not translate into strong trading relations. In 2014, bilateral trade between our two countries was only $186 million. This is well below the potential of our economic relationship. With the lifting of the international sanctions, we should see bilateral trade and investment reaching its natural level. The strategic location of Azerbaijan means it is a convenient base for foreign companies to access the large Iranian market through Baku. Iranian companies will also be able to access the CIS markets through Azerbaijan.

Non-oil sector investments in agriculture, tourism, and service industries increased almost five times in 2015. With increased volatility in the oil sector, what role are non-oil sector investments playing in the growth of the country?

Today, the main task of Azerbaijan is economic diversification. The development concept in “Azerbaijan 2020: The Vision of The Future" describes the objectives for the development of the non-oil sector in Azerbaijan. In 2015, progress was made toward this goal. While the GDP of the economy grew at 1.1%, the non-oil sector grew by 6.4%. Today the non-oil sector is about 70% of the economy. Our country has great natural resources for the development of non-oil sectors, particularly in agriculture and tourism. We have a wonderful climate and ancient history. We played an important role in the development of the Silk Road. Azerbaijan is a bridge between East and West, which gives us a good strategic location for international business. For years, foreign investors have put their investments in the oil sector of Azerbaijan, which has contributed to the growth of the country. Over the next years, I expect foreign investors to also play a similar role in the non-oil sectors. To maintain this growth of the non-oil sector, Azerbaijan is currently working to improve the investment climate in the country. One of the key functions of AZPROMO is to organize a dialogue between the public and private sectors. In this year especially, we need to find answers to the questions of improving business efficiency in our economy. This is important for the sustainable growth of the non-oil sectors of the Republic of Azerbaijan. Thus, non-oil sector investments are playing an important role in achieving balanced economic growth and stimulating competitiveness in the country. This is in line with the vision of our President.

As new parliamentary elections recently took place in November of 2015, how does the continued tradition of stable governance in Azerbaijan assist in attracting FDI?

Since independence, the government of Azerbaijan has recognized that investors prefer stability and certainty. The government knows that investors take a long-term perspective and require stability when making investment plans for the future. A stable political environment gives an investor some certainty that improvements in the business environment will not be chaotic and will be conducted in a manner that encourages the safety and security for the country, its citizens, and investors. Azerbaijan's stable international trading relations have given confidence to international companies and reduced their perception of risk and the costs of doing business. Azerbaijan maintains trade relations with over 160 countries, and has been involved in intensive trade relations with Italy, Turkey, the UK, Indonesia, Germany, the US, Russia, Israel, France, Japan, and many more. As a result, Azerbaijan has a good track record in attracting FDI in all sectors. Flows of FDI into Azerbaijan reached almost $50 billion from 2006 to 2015. Of course much of this was in the oil sector, but a substantial proportion was in the non-oil industries. Naturally, the world changes, and we cannot avoid change. We respond to change in a way that will maintain our stability. Since the fall in the oil price and subsequent devaluation of the manat, the country emphasized the need to accelerate structural reforms and to diversify its economy. Stability is required to make necessary improvements in the business environment, to expand the tax base, and to strengthen the banking system. We understand that investors require stability and a clear action plan to respond to the changing environment and economic challenges in the world.

With Azerbaijan rapidly developing into a regional hub in many different respects, how does AZPROMO promote the country's exports on an international level?

We know that Azerbaijan must have more companies becoming exporters and that our existing exporters must be exporting more. AZPROMO is developing a strategy to increase the promotion of non-oil exports on an international level. For companies that have never exported, we are developing programs and holding workshops to improve their understanding of export practices and procedures, international marketing, and sales disciplines. For example, receiving certifications and creating marketing plans will reduce the risks of exporting and increase the ability of companies to enter the challenging world of exporting. Also, for companies that do not have specialists in exporting activities, we help with the training of people, as well as in the creation of export departments. For our existing exporters, we assist them to export more in their existing markets by improving their understanding of the barriers to exports, such as improving the knowledge of foreign customs procedures and providing trade information. We assist them to export to new markets through the provision of market and sector specific research to identify prospective markets. We also assist them in the participation in international trade fairs and business forums to identify the right buyers. In foreign markets, we are seeking to increase the demand for Azerbaijani goods through the promotion of our national brands through attending exhibitions, advertising, and other international events. We believe this coordinated approach to exporting will assist in the promotion of Azerbaijani exports.